Why Shakespeare's naked truths hold true

Scott Phillips

I don't know that William Shakespeare was a particularly successful investor.

Had he been born a few centuries later, he'd likely surpass JK Rowling's $1 billion fortune, so perhaps investing well might have been something he wouldn't have had to worry about.

Regardless, not only did the Bard leave us with new words and phrases that still pepper our conversation today – including "kill with kindness", "good riddance" and "naked truth" – but he left us with some themes that investors would do well to embrace.

"To thine own self be true"

While the concept of "behavioural investing" wouldn't gain acceptance until almost 400 years after his death, Shakespeare's line from Hamlet should be a touchstone for all investors.

It's devilishly hard to be torn between what you feel you should do, and what you want to do. Modern psychology calls it "cognitive dissonance", or holding two or more conflicting opinions.

Advertisement

Being true to yourself doesn't mean abandoning common sense at the altar of recklessness, but it does mean finding an investing style that suits you and sticking with it. It'll make you much less likely to panic when the bad times come, and give you a framework you can stick with.

"Love is blind"

An often romantic phrase, originally from Romeo and Juliet, many a shareholder has been burned by falling in love with a stock. Whether a loyal customer of the business, or someone on the receiving end of years of share-price growth, they get attached. In that state, it's easy to overlook signs of decay or distress in the company.

Bank shareholders who've enjoyed a couple of decades of market-beating performance are particularly susceptible. As they say, "you might love a stock, but it can't love you back".

"Neither a borrower nor a lender be"

This can be applied equally to investors and the companies we invest in. Margin loans can seem like a clever way to "leverage our capital" and get bigger "bang for our buck".

But our desire to build our wealth can turn into greed, causing us to forget that the downside is also magnified. Throw in nervous margin lenders that can reduce our borrowing power and create a margin call at the stroke of a pen, and the risks get real very quickly.

In the corporate world, we've seen Ten Network (ASX: TEN) and Macmahon Holdings (ASX: MAH) both raise capital recently, to reduce debt. Each has been dilutive and unwelcome to existing shareholders. But the action was necessary.

It's possible for debt to be used responsibly, but it puts your future in someone else's hands, and that's a game of chance you don't want to play.

Shakespeare intended this to be a positive line, but it can be applied equally in reverse. When a company changes its name you have to ask why.

Either the spin doctors have been hard at work, management wants to distance itself from its past, or both. In any case, the smell – good or bad – is just the same. Investors would do well to ignore the new signs on the door.

"All that glisters is not gold"

Ah, the seduction of seemingly easy gains. All is not always as it seems, as the Bard warned us in The Mer-chant of Venice.

We've all heard the claims – snazzy marketing, a hot tip from a friend or a company that seems to do no wrong. We feel like we're missing out and there's "easy money" to be made.

We're tempted to throw caution to the wind and go for the ride. And by the time the market has surrendered to this "new truth", we're ever closer to the painful end. You know what happens next. If it seems too good to be true, it probably is. Since Shakespeare's time, that's been good advice.

Foolish takeaway

We've got something of an affinity with Shakespeare at The Motley Fool. Our company name comes from the court jester – a "fool" in Shakespearean times, dressed in motley colours, who could tell the king the truth without losing his head.

More importantly, there is little truly new – in life or investing – that can't be informed by the wisdom of ages past.

Our job as investors is to learn all we can – again about both life and investing – and apply those lessons with a cool head. Lest, as in Hamlet, we risk being "hoist with our own petard".

The Motley Fool has just released a brand NEW special free report. BusinessDay readers can click here to receive a copy of The Motley Fool's Top Stock for 2012-13.

Scott Phillips is a Motley Fool investment analyst and a fan of Shakespeare. You can follow Scott on Twitter @TMFGilla. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).